Pactiv(PTVE) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis of Pactiv Evergreen Inc.'s financial condition and results of operations Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Pactiv Evergreen Inc., including statements of income (loss), comprehensive income (loss), balance sheets, statements of equity, and cash flows, along with detailed notes explaining the company's operations, accounting policies, restructuring activities, debt, and segment information for the periods ended June 30, 2024 and 2023 Condensed Consolidated Statements of Income (Loss) This statement details the company's revenues, costs, gross profit, operating income, and net income (loss) for the reported periods Condensed Consolidated Statements of Income (Loss) (In millions, except per share amounts) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |:---|:---|:---|:---|:---| | Total Net Revenues | $1,338 | $1,426 | $2,590 | $2,857 | | Cost of Sales | $(1,115) | $(1,342) | $(2,146) | $(2,658) | | Gross Profit | $223 | $84 | $444 | $199 | | Operating Income (Loss) | $97 | $(80) | $171 | $(168) | | Net Income (Loss) | $20 | $(139) | $30 | $(272) | | Net Income (Loss) attributable to Pactiv Evergreen Inc. common shareholders | $19 | $(139) | $28 | $(273) | | Basic EPS | $0.11 | $(0.78) | $0.14 | $(1.54) | | Diluted EPS | $0.10 | $(0.78) | $0.14 | $(1.54) | - The company reported a significant turnaround from a net loss to net income for both the three and six months ended June 30, 2024, primarily driven by increased gross profit and reduced restructuring charges[4] Condensed Consolidated Statements of Comprehensive Income (Loss) This statement presents the net income (loss) and other comprehensive income (loss) components, including currency translation adjustments Condensed Consolidated Statements of Comprehensive Income (Loss) (In millions) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |:---|:---|:---|:---|:---| | Net Income (Loss) | $20 | $(139) | $30 | $(272) | | Other Comprehensive (Loss) Income | $(18) | $24 | $(13) | $31 | | Comprehensive Income (Loss) | $2 | $(115) | $17 | $(241) | | Comprehensive Income (Loss) attributable to Pactiv Evergreen Inc. common shareholders | $1 | $(115) | $15 | $(242) | - Other comprehensive income (loss) was significantly impacted by currency translation adjustments, which shifted from a gain in 2023 to a loss in 2024 for both the three and six-month periods[7] Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and equity at specific points in time Condensed Consolidated Balance Sheets (In millions) | Metric | As of June 30, 2024 | As of December 31, 2023 | |:---|:---|:---| | Cash and cash equivalents | $95 | $164 | | Total current assets | $1,615 | $1,589 | | Total assets | $6,362 | $6,395 | | Total current liabilities | $793 | $796 | | Long-term debt | $3,572 | $3,571 | | Total liabilities | $5,026 | $5,046 | | Total equity attributable to Pactiv Evergreen Inc. common shareholders | $1,332 | $1,345 | | Total equity | $1,336 | $1,349 | - Total assets and liabilities remained relatively stable from December 31, 2023, to June 30, 2024, with a slight decrease in cash and cash equivalents[10] Condensed Consolidated Statements of Equity This statement outlines changes in total equity, including net income, other comprehensive income, and dividends, over the reporting period Condensed Consolidated Statements of Equity (In millions, except share amounts) | Metric | As of Dec 31, 2023 | Net Income (Loss) | Other Comprehensive (Loss) Income | Equity Based Compensation | Vesting of RSUs | Dividends Declared | As of Jun 30, 2024 | |:---|:---|:---|:---|:---|:---|:---|:---| | Total equity attributable to Pactiv Evergreen Inc. common shareholders | $1,345 | $28 | $(13) | $13 | $(4) | $(37) | $1,332 | | Non-controlling interests | $4 | $2 | — | — | — | $(2) | $4 | | Total equity | $1,349 | $30 | $(13) | $13 | $(4) | $(39) | $1,336 | - Total equity attributable to common shareholders slightly decreased from $1,345 million at December 31, 2023, to $1,332 million at June 30, 2024, primarily due to dividends declared and other comprehensive loss, partially offset by net income and equity-based compensation[13] Condensed Consolidated Statements of Cash Flows This statement categorizes cash inflows and outflows from operating, investing, and financing activities for the reported periods Condensed Consolidated Statements of Cash Flows (In millions) | Activity | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |:---|:---|:---| | Net cash provided by operating activities | $61 | $215 | | Net cash used in investing activities | $(100) | $(114) | | Net cash used in financing activities | $(52) | $(337) | | Effect of exchange rate changes on cash | $(1) | $5 | | Decrease in cash, cash equivalents and restricted cash | $(92) | $(231) | | Cash, cash equivalents and restricted cash, end of period | $95 | $326 | - Net cash provided by operating activities decreased significantly from $215 million in H1 2023 to $61 million in H1 2024, primarily due to unfavorable changes in inventory and lower income from operations[15] - Net cash used in financing activities decreased due to lower debt repayments[15] Notes to the Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements Note 1. Nature of Operations and Basis of Presentation This note describes the company's business, the basis of financial statement preparation, and the impact of new accounting pronouncements - The financial statements are prepared in accordance with GAAP for interim information and SEC rules, reflecting normal and recurring adjustments[16] - Management's estimates and assumptions are crucial, and actual conditions could differ, potentially impacting financial results[16] - The company reclassified restricted cash balances on its consolidated statements of cash flows to include them in beginning and ending balances for all periods presented[16] - As of June 30, 2024, there were no restricted cash balances[16] - The company is assessing the impact of new accounting pronouncements, ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Income Taxes), and SEC rules on climate-related disclosures, which will be phased in over several years[17][18] Note 2. Restructuring, Asset Impairment and Other Related Charges This note details the company's restructuring plans, including Footprint Optimization and Beverage Merchandising, and associated charges - The Footprint Optimization plan, approved in February 2024, aims to improve operating efficiency through manufacturing and warehousing footprint optimization[19] - Expected costs include $40-$45 million in capital expenditures, $50-$65 million in cash restructuring charges, and $20-$40 million in non-cash charges, primarily in 2024-2025[19] - For the six months ended June 30, 2024, the Footprint Optimization incurred $8 million in cash charges (severance, exit costs) and $5 million in non-cash charges (accelerated depreciation)[19] - The Beverage Merchandising Restructuring, announced in March 2023, involved closing the Canton, NC mill and Olmsted Falls, OH facility, and reorganizing operations[19] - The company entered a definitive agreement to sell its Pine Bluff, AR mill and Waynesville, NC extrusion facility to Suzano S.A. for $110 million, expecting a non-cash impairment charge of $320-$340 million in Q3 2024[19][20] Beverage Merchandising Restructuring Charges (In millions) | Charge Type | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2024 | Cumulative Charges to Date | Total Expected Charges | |:---|:---|:---|:---|:---| | Non-cash: Accelerated PP&E depreciation | $3 | $6 | $280 | $280 | | Non-cash: Mill Transaction impairment charges | $0 | $0 | $0 | $320 - $340 | | Non-cash: Other non-cash charges | $(1) | $(1) | $49 | $50 | | Cash: Severance, termination and related costs | $0 | $1 | $44 | $45 | | Cash: Exit, disposal and other transition costs | $5 | $12 | $115 | $115 | | Total Beverage Merchandising Restructuring charges | $7 | $18 | $488 | $810 - $830 | Note 3. Inventories This note provides a breakdown of inventory components and changes over the reporting period Inventories (In millions) | Component | As of June 30, 2024 | As of December 31, 2023 | |:---|:---|:---| | Raw materials | $211 | $223 | | Work in progress | $93 | $67 | | Finished goods | $471 | $465 | | Spare parts | $106 | $97 | | Total Inventories | $881 | $852 | - Total inventories increased by $29 million from December 31, 2023, to June 30, 2024, primarily driven by increases in work in progress, finished goods, and spare parts, partially offset by a decrease in raw materials[24] Note 4. Property, Plant and Equipment, Net This note presents the composition of property, plant, and equipment, along with depreciation expense for the periods Property, Plant and Equipment, Net (In millions) | Component | As of June 30, 2024 | As of December 31, 2023 | |:---|:---|:---| | Land and land improvements | $71 | $71 | | Buildings and building improvements | $708 | $690 | | Machinery and equipment | $3,713 | $3,669 | | Construction in progress | $178 | $193 | | Property, plant and equipment, at cost | $4,670 | $4,623 | | Less: accumulated depreciation | $(3,197) | $(3,112) | | Property, plant and equipment, net | $1,473 | $1,511 | Depreciation Expense (In millions) | Component | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |:---|:---|:---|:---|:---| | Cost of sales | $59 | $234 | $117 | $386 | | Selling, general and administrative expenses | $6 | $10 | $12 | $17 | | Total depreciation expense | $65 | $244 | $129 | $403 | - Net property, plant and equipment decreased slightly from $1,511 million to $1,473 million, while total depreciation expense significantly decreased year-over-year, primarily due to lower accelerated depreciation related to restructuring programs[25][26] Note 5. Goodwill and Intangible Assets This note details the company's goodwill by segment and the net carrying value of its intangible assets Goodwill by Reportable Segment (In millions) | Segment | As of December 31, 2023 | As of June 30, 2024 | |:---|:---|:---| | Foodservice | $958 | $958 | | Food and Beverage Merchandising | $857 | $857 | | Total Goodwill | $1,815 | $1,815 | Intangible Assets, Net (In millions) | Component | As of June 30, 2024 (Net) | As of December 31, 2023 (Net) | |:---|:---|:---| | Finite-lived intangible assets | $361 | $391 | | Indefinite-lived intangible assets | $613 | $613 | | Total Intangible Assets, Net | $974 | $1,004 | - Goodwill remained unchanged at $1,815 million[27] - Total intangible assets, net, decreased from $1,004 million to $974 million, primarily due to amortization of finite-lived intangible assets[27] Note 6. Accrued and Other Current Liabilities This note provides a breakdown of accrued and other current liabilities, highlighting changes in key components Accrued and Other Current Liabilities (In millions) | Component | As of June 30, 2024 | As of December 31, 2023 | |:---|:---|:---| | Personnel costs | $76 | $134 | | Rebates and credits | $62 | $85 | | Restructuring costs | $28 | $36 | | Interest | $17 | $17 | | Other | $138 | $127 | | Total Accrued and Other Current Liabilities | $321 | $399 | - Accrued and other current liabilities decreased by $78 million, primarily due to lower personnel costs, rebates and credits, and restructuring costs[28] Note 7. Debt This note outlines the company's debt composition, recent amendments to credit facilities, and interest expense details Debt Composition (In millions) | Debt Type | As of June 30, 2024 | As of December 31, 2023 | |:---|:---|:---| | U.S. Term Loans | $1,327 | $1,680 | | U.S. Revolving Loans | $355 | $0 | | 4.000% Senior Secured Notes due 2027 | $1,000 | $1,000 | | 4.375% Senior Secured Notes due 2028 | $500 | $500 | | 7.950% Debentures due 2025 | $217 | $217 | | 8.375% Debentures due 2027 | $167 | $167 | | Other | $38 | $41 | | Total principal amount of borrowings | $3,604 | $3,605 | | Long-term debt (net of current portion) | $3,572 | $3,571 | - The company amended its Credit Agreement in May 2024, increasing the Revolving Tranche facility from $250 million to $1,100 million and extending its maturity to May 1, 2029[31] - It also replaced $990 million of U.S. term loans Tranche B-3 with a new upsized $1,330 million Tranche B-4, maturing September 24, 2028, at a lower interest rate[31] Interest Expense, Net (In millions) | Component | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |:---|:---|:---|:---|:---| | Credit Agreement - Term Loans | $33 | $43 | $70 | $86 | | Credit Agreement - Revolving Loans | $3 | $0 | $3 | $0 | | Notes | $16 | $16 | $31 | $31 | | Pactiv Debentures | $8 | $8 | $16 | $16 | | Loss on extinguishment of debt | $6 | $0 | $6 | $0 | | Total Interest Expense, Net | $66 | $64 | $125 | $127 | - Interest expense, net, increased by $2 million for the three months ended June 30, 2024, primarily due to a $6 million loss on extinguishment of debt, partially offset by lower interest rates on floating rate debt[40] Note 8. Financial Instruments This note describes the company's use of derivative instruments to manage market risks and their fair value Derivative Instruments Fair Value (In millions) | Derivative Type | As of June 30, 2024 (Asset) | As of June 30, 2024 (Liability) | As of December 31, 2023 (Asset) | As of December 31, 2023 (Liability) | |:---|:---|:---|:---|:---| | Commodity swap contracts | $0 | $(3) | $0 | $(6) | | Foreign exchange derivatives | $1 | $0 | $0 | $0 | | Interest rate derivatives | $8 | $0 | $6 | $(6) | | Total Fair Value | $9 | $(3) | $6 | $(12) | - The company uses commodity and interest rate swaps, and foreign currency exchange forward contracts to manage market risks[41] - Foreign exchange derivatives were initiated in Q1 2024 to hedge foreign currency purchases, with $16 million notional amount for Mexican peso exchange[41] - Interest rate swap agreements, hedging $1,000 million of U.S. term loans at a weighted average fixed rate of 4.120%, were amended in April 2023 to replace LIBOR with SOFR[41][42] - Realized gains from interest rate derivatives were $3 million and $6 million for the three and six months ended June 30, 2024, respectively[41][42] Note 9. Employee Benefits This note details the net periodic benefit expense for the company's defined benefit pension and post-employment benefit plans Net Periodic Benefit Expense (In millions) | Component | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |:---|:---|:---|:---|:---| | Service cost | $0 | $(1) | $0 | $(1) | | Interest cost | $(13) | $(12) | $(25) | $(25) | | Expected return on plan assets | $12 | $9 | $23 | $20 | | Amortization of actuarial gains | $1 | $0 | $2 | $1 | | Total net periodic benefit cost | $0 | $(4) | $0 | $(5) | - Total net periodic benefit cost for defined benefit pension plans and other post-employment benefit plans was $0 for the three and six months ended June 30, 2024, an improvement from a cost of $4 million and $5 million in the prior year periods, respectively[44] Note 10. Other Income, Net This note presents the components of other income, net, including gains or losses from asset sales Other Income, Net (In millions) | Component | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |:---|:---|:---|:---|:---| | Loss on sale of businesses and noncurrent assets | $(1) | $(1) | $0 | $(1) | | Other | $3 | $5 | $5 | $5 | | Total Other Income, Net | $2 | $4 | $5 | $4 | - Other income, net, decreased by $2 million for the three months ended June 30, 2024, but increased by $1 million for the six months ended June 30, 2024, compared to the prior year periods[46] Note 11. Commitments and Contingencies This note discusses the company's involvement in litigation, environmental matters, and warranty obligations - The company is involved in various litigation, legal proceedings, and tax examinations, including environmental matters[47] - While outcomes are uncertain, management does not believe any current matters will have a material adverse effect on its financial condition, results of operations, or cash flows[47] - The company provides warranties and indemnities for past business sales, which could materially affect financial results if claims are successful[48] Note 12. Accumulated Other Comprehensive Loss This note details the changes in accumulated other comprehensive loss, including currency translation and defined benefit plan adjustments Accumulated Other Comprehensive Loss (AOCL) (In millions) | Component | As of Beginning of Period (Dec 31, 2023) | Other Comprehensive (Loss) Income (Six Months Ended Jun 30, 2024) | As of End of Period (Jun 30, 2024) | |:---|:---|:---|:---| | Currency translation adjustments | $(163) | $(18) | $(181) | | Defined benefit plans | $127 | $(2) | $125 | | Foreign exchange derivatives | $0 | $1 | $1 | | Interest rate derivatives | $(1) | $6 | $5 | | Total AOCL | $(37) | $(13) | $(50) | - AOCL increased from $(37) million at December 31, 2023, to $(50) million at June 30, 2024, primarily due to negative currency translation adjustments and losses from defined benefit plans, partially offset by gains from foreign exchange and interest rate derivatives[49] Note 13. Income Taxes This note provides information on the company's income tax position, including ongoing audits and unrecognized tax benefits - The company is under IRS audit for U.S. income tax returns for 2016-2017[50] - No material proposed adjustments have been received[50] - A reduction of up to $9 million in unrecognized tax benefits is reasonably possible within the next twelve months[50] Note 14. Related Party Transactions This note discloses transactions with related parties, including sales, purchases, and outstanding balances - As of June 30, 2024, PFL, an entity beneficially owned by Mr. Graeme Hart, owned approximately 77% of the company's shares[50] Related Party Transactions (In millions) | Transaction Type | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |:---|:---|:---| | Sale of goods and services (Other common controlled entities) | $163 | $199 | | Rental income and transition services agreements | $3 | $1 | | Charges (Rank Group Limited) | $5 | $4 | | Purchase of goods (Other common controlled entities) | $(38) | $(37) | | Related party receivables (As of June 30, 2024: $37; Dec 31, 2023: $35) | | | | Related party payables (As of June 30, 2024: $(7); Dec 31, 2023: $(7)) | | | - Sales of goods and services to other common controlled entities decreased by $36 million for the six months ended June 30, 2024, compared to the prior year period[51] Note 15. Equity Based Compensation This note details the company's equity-based compensation plans, including RSU and PSU activity and associated costs Equity Based Compensation Costs (In millions) | Period | Cost | |:---|:---| | Three Months Ended June 30, 2024 | $6 | | Three Months Ended June 30, 2023 | $10 | | Six Months Ended June 30, 2024 | $13 | | Six Months Ended June 30, 2023 | $15 | Restricted Stock Unit (RSU) Activity (In thousands, except per share amounts) | Metric | Number of RSUs (Six Months Ended June 30, 2024) | Weighted Average Grant Date Fair Value | |:---|:---|:---| | Non-vested, at January 1 | 2,707 | $10.06 | | Granted | 1,658 | $12.96 | | Forfeited | (76) | $11.76 | | Vested | (1,014) | $11.45 | | Non-vested, at June 30 | 3,275 | $11.06 | Performance Share Unit (PSU) Activity (In thousands, except per share amounts) | Metric | Number of PSUs (Six Months Ended June 30, 2024) | Weighted Average Grant Date Fair Value | |:---|:---|:---| | Non-vested, at January 1 | 2,846 | $9.52 | | Granted | 851 | $12.99 | | Forfeited | (319) | $9.77 | | Non-vested, at June 30 | 3,378 | $10.37 | - Unrecognized compensation cost for unvested RSUs was $18 million (weighted average period of 2.1 years) and for PSUs was $20 million (weighted average period of 1.9 years) as of June 30, 2024[52][54] Note 16. Earnings Per Share This note presents the calculation of basic and diluted earnings per share and recent dividend declarations Earnings Per Share (In millions, except per share amounts) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |:---|:---|:---|:---|:---| | Net earnings (loss) attributable to common shareholders | $19 | $(139) | $28 | $(273) | | Weighted average shares outstanding - basic | 179.7 | 178.5 | 179.5 | 178.4 | | Weighted average shares outstanding - diluted | 181.0 | 178.5 | 180.8 | 178.4 | | Basic EPS | $0.11 | $(0.78) | $0.14 | $(1.54) | | Diluted EPS | $0.10 | $(0.78) | $0.14 | $(1.54) | - The company reported positive basic and diluted EPS for both the three and six months ended June 30, 2024, a significant improvement from losses in the prior year periods[57] - On July 29, 2024, the Board of Directors declared a dividend of $0.10 per share, payable September 13, 2024[56] Note 17. Segment Information This note provides financial data for the company's Foodservice and Food and Beverage Merchandising reportable segments - Pactiv Evergreen Inc. operates with two reportable segments: Foodservice and Food and Beverage Merchandising[56] - The Foodservice segment manufactures food containers, drinkware, tableware, and serviceware[56] - The Food and Beverage Merchandising segment produces cartons for fresh refrigerated beverages, clear rigid-display containers, meat/poultry/egg trays, and liquid packaging board[56] Reportable Segment Net Revenues and Adjusted EBITDA (In millions) | Segment / Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |:---|:---|:---|:---|:---| | Foodservice | | | | | | Net Revenues | $668 | $656 | $1,265 | $1,270 | | Adjusted EBITDA | $109 | $128 | $199 | $234 | | Food and Beverage Merchandising | | | | | | Net Revenues | $670 | $770 | $1,325 | $1,585 | | Adjusted EBITDA | $93 | $109 | $193 | $210 | | Total Reportable Segment | | | | | | Net Revenues | $1,338 | $1,426 | $2,590 | $2,855 | | Adjusted EBITDA | $202 | $237 | $392 | $444 | - Foodservice net revenues increased by 2% for the three months ended June 30, 2024, but decreased slightly for the six-month period[60] - Food and Beverage Merchandising net revenues decreased by 16% and 19% for the three and six-month periods, respectively, primarily due to the Canton mill closure and lower sales volume[60] - Both segments experienced a decrease in Adjusted EBITDA for the three and six months ended June 30, 2024, compared to the prior year, mainly due to higher manufacturing costs and unfavorable product mix[60] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance and condition, discussing key factors influencing results, recent developments, and liquidity. It highlights a moderation in demand, ongoing inflationary pressures, and strategic restructuring efforts aimed at improving efficiency and optimizing the manufacturing footprint Our Company This section provides an overview of Pactiv Evergreen Inc.'s core business as a leading North American manufacturer and distributor of food packaging products - Pactiv Evergreen Inc. is a leading North American manufacturer and distributor of fresh foodservice and food merchandising products, including containers, drinkware, beverage cartons, and trays[67] - The company recently signed an agreement to sell its liquid packaging board manufacturing facilities[67] Business Environment This section discusses the economic factors, including inflation and consumer spending, impacting the company's market and operational strategies - In Q2 2024, the company experienced moderated demand for certain products due to sustained high inflation impacting consumer spending[68] - These pressures are expected to persist, affecting customer purchasing decisions[68] - While inflation rates have moderated, input costs are expected to face continued upward pressure, leading to increased price sensitivity from customers[68] - The company's pricing strategy aims to manage market position through cost recovery and competitive pricing[68] - The company remains focused on customer service, manufacturing productivity, and cost optimization amidst economic uncertainty, including higher interest rates and geopolitical factors[68] Recent Developments and Items Impacting Comparability This section highlights key strategic initiatives and events that affect the comparability of the company's financial results Beverage Merchandising Restructuring This section details the ongoing restructuring plan for the Beverage Merchandising segment, including facility closures and asset sales - The Beverage Merchandising Restructuring plan, initiated in March 2023, aims to increase production efficiency, streamline management, and reduce capital expenditures and overhead costs[69] - The company entered a definitive agreement to sell its Pine Bluff, Arkansas mill and Waynesville, North Carolina facility to Suzano S.A. for $110 million, with the transaction expected to close in Q4 2024[69] - A long-term liquid packaging board supply arrangement with Suzano will also be established[69] Footprint Optimization This section describes the company's initiative to optimize its manufacturing and warehousing footprint for improved operational efficiency - The Footprint Optimization plan, approved in February 2024, is a restructuring initiative designed to optimize manufacturing and warehousing operations to improve operating efficiency[70] Non-GAAP Measures – Adjusted EBITDA This section defines and reconciles Adjusted EBITDA, a non-GAAP measure used by management to assess operational performance - Adjusted EBITDA is a non-GAAP financial measure used by management to evaluate operating performance, generate future plans, make strategic decisions, and incentivize employees[71] - It excludes items such as income tax expense, net interest expense, depreciation and amortization, restructuring charges, and unrealized gains/losses on derivatives[71] Adjusted EBITDA Reconciliation (In millions) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |:---|:---|:---|:---|:---| | Net income (loss) (GAAP) | $20 | $(139) | $30 | $(272) | | Income tax expense (benefit) | $11 | $(8) | $16 | $(27) | | Interest expense, net | $66 | $64 | $125 | $127 | | Depreciation and amortization (excluding restructuring charges) | $75 | $82 | $150 | $166 | | Beverage Merchandising Restructuring charges | $7 | $216 | $18 | $403 | | Footprint Optimization charges | $3 | $0 | $13 | $0 | | Other restructuring and asset impairment charges (reversals) | $2 | $1 | $2 | $0 | | Loss on sale of businesses and noncurrent assets | $1 | $1 | $0 | $1 | | Non-cash pension expense | $0 | $3 | $0 | $4 | | Unrealized (gains) losses on commodity derivatives | $(1) | $(1) | $(2) | $1 | | Foreign exchange (gains) losses on cash | $(1) | $(2) | $(1) | $2 | | Other | $0 | $0 | $0 | $1 | | Adjusted EBITDA (Non-GAAP) | $183 | $217 | $351 | $406 | - Adjusted EBITDA decreased by 16% to $183 million for the three months ended June 30, 2024, and by 14% to $351 million for the six months ended June 30, 2024, compared to the prior year periods, primarily due to higher manufacturing costs and lower sales volume[72] Results of Operations This section analyzes the company's consolidated financial performance, including revenues, costs, and profitability, for the reported periods Three Months Ended June 30, 2024 and 2023 This section provides a detailed comparison of the company's consolidated financial results for the three-month periods Consolidated Results (In millions, except for %) | Metric | 2024 | % of Revenue | 2023 | % of Revenue | Change | % Change | |:---|:---|:---|:---|:---|:---|:---| | Total net revenues | $1,338 | 100% | $1,426 | 100% | $(88) | (6)% | | Cost of sales | $(1,115) | (83)% | $(1,342) | (94)% | $227 | 17% | | Gross profit | $223 | 17% | $84 | 6% | $139 | 165% | | Operating income (loss) | $97 | 7% | $(80) | (6)% | $177 | NM | | Net income (loss) | $20 | 1% | $(139) | (10)% | $159 | NM | | Adjusted EBITDA | $183 | 14% | $217 | 15% | $(34) | (16)% | - Total net revenues decreased by $88 million (6%) due to the Canton mill closure and lower sales volume, particularly in Food and Beverage Merchandising[73][75] - Gross profit significantly increased by $139 million (165%) due to lower restructuring charges and the mill closure[73][75] - Operating income improved from a loss of $80 million to an income of $97 million[73][76] - Net income turned positive at $20 million, compared to a $139 million loss in the prior year[73][76] Components of Change in Reportable Segment Net Revenues (Three Months Ended June 30, 2024 vs 2023) | Segment | Price/Mix | Volume | Mill Closure | Total | |:---|:---|:---|:---|:---| | Foodservice | 2% | 0% | 0% | 2% | | Food and Beverage Merchandising | (1)% | (5)% | (10)% | (16)% | | Total Net Revenues | 0% | (3)% | (3)% | (6)% | Six Months Ended June 30, 2024 and 2023 This section provides a detailed comparison of the company's consolidated financial results for the six-month periods Consolidated Results (In millions, except for %) | Metric | 2024 | % of Revenue | 2023 | % of Revenue | Change | % Change | |:---|:---|:---|:---|:---|:---|:---| | Total net revenues | $2,590 | 100% | $2,857 | 100% | $(267) | (9)% | | Cost of sales | $(2,146) | (83)% | $(2,658) | (93)% | $512 | 19% | | Gross profit | $444 | 17% | $199 | 7% | $245 | 123% | | Operating income (loss) | $171 | 7% | $(168) | (6)% | $339 | NM | | Net income (loss) | $30 | 1% | $(272) | (10)% | $302 | NM | | Adjusted EBITDA | $351 | 14% | $406 | 14% | $(55) | (14)% | - Total net revenues decreased by $267 million (9%) for the six months ended June 30, 2024, primarily due to the Canton mill closure, lower sales volume, unfavorable product mix, and lower pricing[79][80] - Gross profit increased by $245 million (123%) due to lower restructuring charges[79][80] - Operating income improved from a loss of $168 million to an income of $171 million[79][81] - Net income turned positive at $30 million, compared to a $272 million loss in the prior year[79][81] Components of Change in Reportable Segment Net Revenues (Six Months Ended June 30, 2024 vs 2023) | Segment | Price/Mix | Volume | Mill Closure | Total | |:---|:---|:---|:---|:---| | Foodservice | 0% | 0% | 0% | 0% | | Food and Beverage Merchandising | (3)% | (5)% | (11)% | (19)% | | Total Net Revenues | (2)% | (3)% | (4)% | (9)% | Liquidity and Capital Resources This section discusses the company's ability to generate and manage cash, including its cash flows, debt, and working capital Cash flows This section analyzes the company's cash inflows and outflows from operating, investing, and financing activities Cash Flows (In millions) | Activity | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |:---|:---|:---| | Net cash provided by operating activities | $61 | $215 | | Net cash used in investing activities | $(100) | $(114) | | Net cash used in financing activities | $(52) | $(337) | | Net decrease in cash, cash equivalents and restricted cash | $(92) | $(231) | - Net cash outflows decreased by $139 million (60%) compared to the prior year, primarily due to a decrease in cash used in financing activities, partially offset by lower net cash provided by operating activities[85] - Primary cash sources for H1 2024 were $61 million from operating activities[85] - Primary uses were $98 million for capital expenditures and $36 million for dividends[85] Dividends This section provides information on the company's dividend payments and future dividend policy - The company paid cash dividends of $36 million during each of the six months ended June 30, 2024 and 2023[86] - A dividend of $0.10 per share was declared on July 29, 2024, payable September 13, 2024[86] - Future dividend payments are subject to Board approval and limited by the Credit Agreement and Notes[86] Financing and capital resources This section details the company's debt structure, credit agreements, and annual cash interest obligations - As of June 30, 2024, total principal amount of borrowings was $3,604 million, with $1,682 million subject to variable interest rates[87] - The Credit Agreement was amended in May 2024 to increase the Revolving Tranche facility to $1,100 million and extend its maturity to May 1, 2029[87][88] - Existing term loans were refinanced with a new upsized $1,330 million Tranche B-4, maturing September 24, 2028, at a lower interest rate[87][88] - Annual cash interest obligations are expected to be approximately $230 million based on the SOFR rate as of June 30, 2024, including interest rate swap impacts[88] Liquidity and working capital This section assesses the company's overall liquidity position, including cash, credit availability, and working capital Liquidity Position (In millions, except for current ratio) | Metric | As of June 30, 2024 | As of December 31, 2023 | |:---|:---|:---| | Cash and cash equivalents | $95 | $164 | | Availability under revolving credit facility | $696 | $201 | | Total Liquidity | $791 | $365 | | Working capital | $822 | $793 | | Current ratio | 2.0 | 2.0 | - Total liquidity significantly increased to $791 million as of June 30, 2024, from $365 million at December 31, 2023, primarily due to the increased availability under the Revolving Tranche facility[90][91] - Working capital increased by $29 million (4%) to $822 million, mainly due to higher inventory levels[91] - The company anticipates $260 million in capital expenditures for 2024[91] Critical Accounting Policies, Estimates and Assumptions This section refers to the company's key accounting policies and estimates that require significant management judgment - The company's critical accounting policies and estimates, which involve significant judgment and uncertainty regarding future events, are detailed in its Annual Report on Form 10-K for the year ended December 31, 2023[92] Recent Accounting Pronouncements This section references disclosures regarding newly adopted and issued accounting standards - Information on recently adopted and newly issued but not yet adopted accounting standards is included in Note 1, Nature of Operations and Basis of Presentation, of the financial statements[93] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section discusses the company's exposure to market risks, particularly foreign currency exchange rate risk, and the strategies employed to mitigate these risks. No material changes to market risk were noted during the period Foreign Currency Exchange Rate Risk This section details the company's exposure to foreign currency fluctuations and its hedging strategies - The company is exposed to foreign currency exchange risk from operations in Mexico, specifically transactions and balances denominated in U.S. dollars instead of the Mexican peso[95] - To manage this risk, the company uses foreign currency exchange forward contracts to hedge portions of forecasted purchases denominated in non-functional currencies[95] - As of June 30, 2024, contracts with a notional amount of $16 million were in place to exchange Mexican pesos[95] - A 10% change in the spot rate for these forward contracts would result in a $2 million change in unrealized gain recognized in comprehensive income (loss)[95] Item 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the quarter - As of June 30, 2024, management, under the supervision of the CEO and CFO, concluded that the company's disclosure controls and procedures were effective[96] - There were no material changes in internal control over financial reporting during the three months ended June 30, 2024[96] PART II. OTHER INFORMATION This section contains additional disclosures not covered in the financial statements, including legal, risk, and equity information Item 1. Legal Proceedings This section incorporates by reference the details of legal proceedings from Note 11, Commitments and Contingencies, indicating no material adverse effects are expected from current litigation - Information on legal proceedings is incorporated by reference from Note 11, Commitments and Contingencies, in the interim Condensed Consolidated Financial Statements[97] Item 1A. Risk Factors This section states that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2023 - No material changes to the risk factors described in the Annual Report on Form 10-K for the year ended December 31, 2023, have occurred[98] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section indicates that there were no unregistered sales of equity securities or use of proceeds during the reporting period - There were no unregistered sales of equity securities or use of proceeds[98] Item 3. Defaults Upon Senior Securities This section reports that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[98] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable[98] Item 5. Other Information This section provides other relevant information, specifically noting that no directors or executive officers adopted or terminated 10b5-1 trading arrangements during the quarter - No directors or executive officers adopted or terminated any 10b5-1 trading arrangements during the three months ended June 30, 2024[98] Item 6. Exhibits This section lists all exhibits filed as part of, or incorporated by reference in, the quarterly report, including corporate governance documents, credit agreements, and certifications - The report includes various exhibits such as the Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, several amendments to the Credit Agreement, and certifications from the Principal Executive Officer and Principal Financial Officer[99][101] SIGNATURES This section contains the required signatures for the quarterly report filing